Does Ticketmaster Undercount Tickets Sold To Underpay?

from the concert-accounting dept

Over the years, we've noticed some questionable "accounting" practices in various parts of the entertainment industry. There's recording industry accounting, where labels make a ton of money and most musicians end up in debt. There's Hollywood accounting, where some of the most successful movies of all time are somehow declared "not profitable" so they can avoid paying actors any residuals. Then there is music performance rights accounting, where only the top 200 touring acts get to collect royalty money.

According to Plaintiff, the event was “extremely popular” — traffic was backed up on the
highways and news outlets reported large crowds of twenty to forty thousand people attending... Much to Plaintiff’s surprise, Defendant reported that it had sold only 13,151 tickets.... These numbers seemed too low to Plaintiff, and Plaintiff began an investigation of
Defendant’s audit reports... Plaintiff allegedly found that on the day before the
event, March 24, 2009, Defendant reported that the number of tickets sold was 14,408... The very next day, though, the reported number of sales dropped to 11,098...
According to Plaintiff, this was suspicious because there were no refunds or exchanges... Based on this suspicion, Plaintiff hired an expert in digital imaging who examined the
video footage of the soccer match... The expert estimated that attendance was likely
as high as 24,311.

Kinda makes you wonder if this is standard practice... and if this is why the legacy entertainment guys seem to assume that all fans want to screw them over. Perhaps they're just used to every one else they run into trying to screw them over.

Auditing is possible

I am a semi-regular at Techdirt, and I was Director of Systems Support at Ticketmaster back in the 1980s; my knowledge of TMs systems and business practices is definitely dated. Nevertheless, I may be able to add some light.

Who knows what business practices are at TM today, though I would be very surprised if those practices included outright fraud at high levels. Low level fraud, if it existed, would be caught fairly quickly by the audit controls inside of the database. High level management wouldn't tolerate low level fraud as it would damage the brand--not with the general public (TM, I think, only marginally cares about this brand as it skates just on the legal side of monopoly for any given client event), but with promotors and arena managers who have the ability to shop competing ticketing systems.

Occam's Razor suggests the more likely cause of many less ticket sales than people at the event are: people crashed the event; the promoter sold tickets off the system; the promoter issued comps and didn't register them in the system.

Nine of this explains how the sales would have dropped 3,000 just before the event. But, again, this could be as simple as someone misreading or misunderstanding a report. The TM Audit report is like a balance sheet in that it is a snapshot at any given point of time. The TM Sales report breaks down sales by seller over a given period of time. The first step in auditing the event would be to reconcile the two -- and there are tools within the TM system to do just that.

When I was at TM, the data was stored in B-trees in a hierarchical database. It would have been impossible for someone without extremely deep database knowledge to hide sales without leaving an audit trail of their behaviors. I don't know what the current database system is.

Director of Systems Support at Ticketmaster - probably right, but i watched Risky Business in the 80s

Risky Business stated that there is always someone else who will be desparate enough to do something illegal, therefore you have to always do everything, however illegal it is, to win. Afterall its only when Tom Cruise tries to bribe the interviewer from Harvard Business School with prostitutes that Harvard Business School deems Tom good enough to get in.
Also, that however much you may be working for a business enterprise the important person is yourself.
Therefore all businesses have to do as much as they can however illegal - in the name of the shareholders - but actually to get as much money for their own directors pocket.
I am told i am cynical - but i keep getting proven right.
The rule of Risky Business seems to work. Sorry.

Re: Auditing is possible

I don't believe you.

Everything Ticketmaster does is driven by greed. Raw, insatiable, massive greed. I'm sure that Ticketmaster employees would pimp out their own children IF they could make a reasonable profit and get away with it.

Ticketmaster has proven this so many times over that it's not even worth arguing about.

So while it doesn't mean that Ticketmaster is guilty of fraud in this particular case, Occam's Razor dictates that this is the most likely assumption to start with.

Re: Re: Auditing is possible

Perhaps the stadium themselves didn't hand out anything, but a couple of "rogue employees" could certainly turn a blind eye to people entering without a ticket.

The estimate is probably high, the sales a little low, and the real number somewhere in the middle. As with the original comment poster, I think that TM would certainly be taking way too big of a risk to be shaving sales to this level. It just seems a little out of line for a company that makes so much money on each ticket sale to start with.

Corporate Fraud?

The problem is Danny is probably right. Wholesale fraud is bad for business. Consistent fraud can earn the participants RICO violations, which is worse than just fraud. Stealing to make yourself a millionaire makes sense; stealing to make someone else an extra million on ther 10-million salary makes no sense, if you will eventually do 20 to life for it.

Either the fraud was simple - sell X tickets, report (X-10,000)to the client. A quick audit of the database shows the fraud.

Or, it's part of the programming. Database backups, logs, etc. will show the result. If a serious audit team digs in, the database should give them a list of everyone who bought a ticket and even what seat. Since these tickets have to be paid for, a list of charges to VISA etc. should be easy to reconcile.

It occurs to me the way to do this is to set up 2 event sales, and distribute the tickets between then and report on only one - but a good audit would find this in no time too. Plus, we're back to conspiracy territory. If you are messing with the database or web site, it involves low-level employees with no reason to keep their mouth shut.

The record company and Hollywood accounting tricks are out in the open. They expense things that are outrageous, but true. One favourite I recall was to sell the hit movie to TV as a package with a bunch of real floaters; then distribute the revenue evenly, although the money was obviously paid just to get the one movie broadcast rights. Legal but shady.

The one instance I recall that was outright fraud was when Herbert was invited to talk about "Dune" at some campus. He expressed surprise, since he had only sold 3,000 copies in the whole USA. "Huh?", said the campus bookstore guy. "We've sold that many just in this bookstore."

Re: Corporate Fraud?

The problem is Danny is probably right. Wholesale fraud is bad for business. Consistent fraud can earn the participants RICO violations, which is worse than just fraud. Stealing to make yourself a millionaire makes sense; stealing to make someone else an extra million on ther 10-million salary makes no sense, if you will eventually do 20 to life for it.

It'd be nice if that was true. But -- to date -- the feds haven't even prosecuted, let alone convicted, anyone involved in the systemic, massive mortgage/foreclosure fraud that melted down the economy a couple of years ago.

Instead, we have the spectacle of A.G. Holder on his knees servicing the MAFIAA.

Erm what about ticket stubs?

every ticked event i have ever been to, they tear of a perforated ticket stub with a serial number on it and keep it then give you the remaining portion back. So rather than counting people in video footage can't they just count the ticket stubs and match the serial numbers to the serial numbers stored in the ticketmaster database.

The solution would be to demand a paper trail. Each person entering an event hands in part of their ticket, a receipt which indicates where or how the ticket was purchased or acquired. This way the event coordinator can collect, count, and verify the source and price of the tickets.
eTickets would be a bit trickier, but there are ways to record them too.
It doesn't seem prudent to let the wolf count the sheep and report to the shepherd how many should be on their way to market.

Re: Re: Auditing is possible

This is an opening for my to offer my theory (insert Anne Elk joke here) about Ticketmaster and why they are hated so much.

As I said above, TM competes for business at the level of getting promoters and arenas to choose them. They often win that competition by offering really good (legal) kickback deals to clients, and raising the cash for those deals by milking the retail customer with very high "convenience" charge fees. In olden days, ticket services used to charge arenas X cents per ticket sold. TM made their name in the industry by turning that around and saying to arenas "we will give you X cents for every ticket we sell for you; and we will charge you X cents for every ticket of ours you sell at your box office."

The outcome of this is that arenas realized that ticketing, something they used to consider an expense, could now be a new revenue stream--and they made more money if the severely limited local box office sales. This change happened in the 1980s.

Pre-Ticketmaster, service charge used to be 25 cents or 50 cents a ticket; you know what it is today. And that is because the retail customer is providing the revenue stream through TM to the TM client (and TM nets a good deal of money from this as well.)

A side note: the details of each contract are secret, so the promoters (music act promoters usually, but in this case we have a soccer game promoter) don't get to see them. So the promoter has a hard time taking a fraction of this arena kickback (the industry term isn't kickback--it is "inside charge"). This (and concessions, of course) is how arenas make enough money to stay afloat.

So, how high can service charges go before this model falls apart? Well the model isn't going to break because arenas move to a competitor. Arenas like the big kickbacks on service charge. The model only breaks when the charge is so large that people stop going to shows.

That leads to my theory. It is simple micro-economics. They way TM finds how much people will pay before they stop going to a show is to continue to raise service charges to the point people are screaming bloody murder about Ticketmaster, but are still buying tickets. If the charge is too high, they stop buying. If people aren't screaming bloody murder about how Ticketmaster is a bunch of thieves, then the service charge can still go higher.

This works from a "brand" point of view because it doesn't matter how much the retail customer hates Ticketmaster. They still have to buy tickets through them if they want to attend an event where the arena has selected TM as its ticket agent.

Of course in real life the model is a bit more complex: there is ticket scalping, the TM contract is sometimes with the promoter--not the arena, and TM has gotten into promoting events itself recently. But the general idea holds.

I should point out, no one in TM management has ever said this to me--it is my own theory, it belongs to me. But it is consistent with everything I know about the company and the industry. And it is, as far as I can tell, completely legal. Ethics? Your mileage may vary.

So to the poster above: you can call this greed. But nothing in this model suggests fraud. Nothing in my personal experience with Ticketmaster ever suggested fraud was occurring. And, in fact, part of TM's brand with arenas and promoters is scrupulous accuracy and honesty in their event audit reports--so both sides know the data is truthful. Any fraud at all severely damages that brand.

Re: But the wolf paid for exclusive 'market' rights.....

Since the wolf bought the laws and has exclusive rights to deliver goods to the 'market', the shepherd really doesn't have much choice now does he?

Oh wait, he can lobby for his own laws to allow 'competition' into the market... I'm sure we know how Mr. Wolf would feel about that, and what he would do (anything possible, regardless of legality) to prevent any competition in his 'market monopoly'.

Now where's the woodcutter when you need him, there's an easy way to solve the problem of the wolf (in the story)....

Re: Erm what about ticket stubs?

Good, but not flawless, what if someone buys a ticket and can't make it through ill health/the car broke down/the train got cancelled.
Stubs at the door are not proof of ticket sales, just attendance.

You've also got to take into account the ticket touts who buy up as many as they can and sell them outside the venue, they sure as hell don't want to see the gig, just make a quick buck, any tickets that they have left are discarded and they still make their money.

Re: Auditing is possible

Counting ticket stubs

The key to this is that TM's contract as ticket agent was with UTEP (owner of the stadium), and the promoter had a separate contract with UTEP. There was no contract between the promoter and TM.

So, TM made all their audit and sales reports available to their client: UTEP; but apparently did not make their reports available to the promoter.

It sounds like, from reading the report and the legal document, that TM stopped cooperating with the promoter when the promoter hired the video company to estimate attendance.

Not stated, but I would be curious to know:
1. Were blocks of tickets pre-printed for hard ticket sales by retail outlets?
2. Did promoter employ agents to sell hard tickets in El Paso or in Mexico?
3. If either of the above were true, how did TM account for these hard tickets in their system?
4. If either of the above were true, how did the promoter account for hard tickets that were in its hands?
5. Was the event reserved seating or general admission? If GA, did anyone check for counterfeit tickets among the ticket stubs (it is fairly easy to commit fraud at a GA event if you know what you are doing)?
6. What, exactly, did the TM Audit and Sales reports say?

The legal proceedings provided do not address any of these questions. Any good data audit would get at this information.

Re: Re: Auditing is possible

Yeah. TM was slow to move to the Internet in the 1990s and several small firms emerged as online competition. I've read that TM sells less than half of all eTickets today, but I can't confirm that ratio. It really depends on how you define the boundaries of the market. TM isn't interested in doing charity event sales. I was the consultant a few years back to a small museum that was looking to contract for a ticketing system. We shopped about six of them; TM's bid came in by far the highest of the six.

I am pretty sure that many of the MLB clubs that used to be with TM have moved away to a different system in recent years.

Aside: I recall a conversation I had with the founder of Ticketmaster in 1995 when I tried to explain to him what this new WWW thing was and why he should set up a channel for online sales. His response to me was: "I already pay overhead for retail outlet sales and telephone sales; if I spend the money to build an infrastructure for WWW sales I will increase my costs, but I won't sell any additional tickets."

LiveNation

I don't know about this particular situation, but this summer I attended a concert in Chicago that was $150 a ticket for free because of a friend at LiveNation. He told me that the band received %125 of "paid" ticket sales minus fees and taxes. LiveNation expected to make up this deficit on food and drink sales. Now I know the fees are not insignificant, but they likely made more money off of me than off of someone who paid for their ticket.

I didn't get the ticket until the last minute, so my guess is that these situations are broken out in the contract and probably beneficial to both the band and LiveNation. But it was still interesting.

Re: Auditing is possible

When I was at TM, the data was stored in B-trees in a hierarchical database. It would have been impossible for someone without extremely deep database knowledge to hide sales without leaving an audit trail of their behaviors. I don't know what the current database system is.

It is called Oracle. While it is complex, it isn't beyond the capability of your average DBA. Especially with a motivated accountant, and a part time lawyer.

Re: Re: Auditing is possible

It wasn't Oracle, it was proprietary. But you are right that it was circa 1970. DB2 and others were also similar, generally, in structure. Since this was proprietary, there were less DBA tools, and a very specific internal structure to the data.